Marketing Strategies for

New Market Entries

Canon Inc. – Success that is Hard to Copy
o Even before the economic crisis of decade of 2000, Japan suffered four recessions during 1990s
o From 2000 onward Canon delivered 7 years of record sales with 16% RoE
o The worldwide recession of 2008 slowed the market yet Canon registered 11% RoE
o How Canon managed to wring such stellar business?
o Canon narrowed the company’s strategic scope by focusing on few product markets where the firm
had dominant market presence and superior technological capabilities
o Abandoned businesses with weakened competitive position e.g. PCs and LCDs
o He replaced the assembly line workers with small work teams – cells of about 6 employees
o Which resulted into lower labor cost
o It also cut its inventory cost by 30%
o Second heavier emphasis on developing products
o The company ploughs nearly 8% of its total revenue into product research & development
o This continued investment was in businesses where it already holds a dominant market position
o It also modified the existing technology to better serve the new segments such as bubble-jet printer
for commercial printing industry
o Canon decentralized its global sales and marketing function e.g. Canon Europe Ltd.
o It is easier to get revenue growth by cutting cost – but developing innovative products can have
bigger impact on share holder value in the long haul
o The new product introductions can differ in their degree of newness from the perspective of
customers
o Being the Pioneer – gains the firm a number of possible potential advantage, it also involves some
major risks
o Is it usually better for the firm to bear the high costs and risks of being the pioneer in hope of
maintaining a profitable position or a follower that watches for possible design or marketing
mistakes before joining the fray?
o Not all Pioneers intend to remain the market share leader as the market grows. Some adopt a niche
marketing strategy to make substantial profits and jump ahead by constantly introducing new
products and withdrawing from older markets as they become over competitive.
o Even a Pioneer firm’s marketing strategy must change as its product moves through the product life
cycle.
Stages in a Product Life Cycle
o Introductory
o Product often lacks easy availability
o Target market are unaware of its existence
o Growth
o As more people learn about the product and it becomes easily available
o Sales increase at a progressively faster rate
o Shakeout
o Growth slows as the number of buyers nears maximum
o Repeat sales becomes increasingly more important than first time sales
o Growth becomes largely the function of population growth
o Decreasing growth rate results in strong price competition
o Mature
o Net adoption rate holds steady
o Decline
o Sales rate declines
o When adopters approximate dropouts and latter begin to exceed new users
 Exhibit 8.1

Generalized Product Life Cycle

Product category sales

(real dollars)

Life cycle
extension

Profit/unit
Sales
Profit per unit
(real dollars)

Introduction
Maturity Decline or
extension
Competitive
Growth turbulence
Time (years)
Market and Competitive Implications of Product Life Cycle Stages
• Introductory Stage
• Difference between pioneering a product class and product type
• The former is more difficult, expensive and risky
• The introductory period is apt to be long
• Marketing mix in the introductory stage
• The product line should be relatively short to reduce production and inventory cost
• Stress is on establishing competitive advantage by differentiating the new product
• The product pricing
• The product’s value to end user
• How quickly the competitor can imitate the product
• The presence of close substitutes
• The effect of price on volume off take
• Skimming is applicable in niche market or in which customers are price insensitive
• Penetration is used when the firm strives to for quick market development
• A large market base and strong potential competition
• The importance of distribution and channel intermediaries varies for consumer and industrial
goods
• The latter are sold direct with few exceptions, consumer goods use one or more channel intermediaries
 • Distribution is easier if company uses the same distribution channel
• Availability is important in consumer goods, due to heavy investment in ads
• During the introductory period, promotion expenditure involving advertising
and sales force are a higher percentage of sales
• Industrial goods costs of personal selling are higher than ads cost
• The communication task at the outset is to build awareness of the new
product’s uniqueness
• The promotional expenditure such as in-store displays, coupons, samples and
off-list pricing are required to obtain trial
• Growth Stage
• The stage starts with sharp increase in sales
• The product line expands to attract new segments
• Important product improvement continue during growth stage
• Marketing Mix Changes
• The quest for competitive advantage shifts to differentiation from other entrants
• Prices tend to decline during the growth period
• Price difference between brands tend to decrease
• The extent of the decline depends on
• cost-volume relationship
• Industry concentration
• Volatility of the raw material costs
• Seller of both consumer and industrial goods strive to build a channel that provides
for product availability
• Promotions costs become more concerned with building demand for company’s
brand (selective demand) than for the product class or type (primary demand)
• Communication is also used to cultivate new segments
• Shakeout Stage
• The advent of this period is signalled by drop in growth rate and is typically
marked by substantial price cuts
• A weaker competitor exit the market stronger player gain the share
• The firm must rationalize by eliminating weaker products
• Marketing mix changes
• Firms make every effort to maintain and enhance their distribution system
• Channel intermediaries use this downturn to reduce the number of products carried
• Weaker companies have to offer their intermediaries substantial inducements to
continue stocking all or even part of their product line.
• Mature stage
• When sales plateau the product enters the mature stage
• Strong market leaders enjoy profits and positive cash flows due to lower per
unit cost and lack of need to expand their facilities
• Decline Stage
• Products enter this stage due to introduction of technologically superior
substitutes or change in consumer taste and beliefs
• As the sales decrease, costs increase and efforts are needed to reduce costs
and asses base.
• Marketing mix changes
• Marketing expenditures especially associated with promotion tend to
decrease to adjust the decline in sales.
• Prices remain stable if the rate of decline is slow
• Marketing activities centres on distribution pursuing intermediaries to
continue stocking
• Aggressive pricing is apt when decline is fast
Limitations of the Product Life Cycle
o Normative approach to prescribing strategies
o Strategies are based on assumptions about the features of each stage
o PLC in reality is driven by market forces, the evolution of consumer preferences,
the technology (the product) and competition.
New Market Entries – How New is New?

o New-to-the-world products – New to the firm and create an entirely new market
o New product lines – A product category that is new for the company introducing
it bu not for the customers
o Additions to existing product lines – New items that supplement the firm’s
established product line
o Items may be moderately new to both the firms and the customers
o Improvements in existing products –Items providing improved performance or
greater perceived value
o These products may pose moderate challenge towards marketing and
production
o Repositioning – Existing products targeted at new applications and new market
segments
o Cost reductions – Product modification providing similar performance at lower
cost
Exhibit 8.4
Categories of New Products Defined According to their Degree of
Newness

High
10%
20%
New-to-the world
Newness to the company

New product lines products

26% 26%

Revisions/
Additions to existing
Improvements to
product lines
existing products

11% 7%
Repositionings

Low Cost reductions

Low High
Newness to the market

Source: New Products Management for the 1980s (New York: Booz, Allen & Hamilton, 1982). Reprinted by permission.
Objectives of New Product and Market Development

o Maintain position as a product innovator

o Defend a current market-share position
o Establish a foothold in a future new market
o Exploit technology in a new way
o Capitalize on distribution strengths
o Provide a cash generator
o Use excess or off-season capacity
o Preempt market segment
Pioneer Strategy

o Potential sources of competitive advantage

o First choice of market segments and positions

o Opportunity to develop a product offering with attributes most important to the large segment

o Opportunity to promote attributes that favor the brand

o Pioneer’s brand can become standard of reference

o Makes the follower with me-too products to establish superiority

o Defining the rules of the game

o Actions on variables such as product, quality, price, distribution, warranties, after sales service
and promotion set standard.

o If the standards are set high enough, it will raise the barrier to entry
Pioneer Strategy
o Distribution advantages

o Most options in designing distribution channel and tie-up with the best distributor

o This is true particularly when product is technically complex and requires high inventory

o In consumer goods, the pioneer has an advantage to acquire more retail outlets and shelf space

o Economies of scale and experience

o Pioneer can gain volume and experience thereby lower unit costs

o Pioneer can deploy these advantages towards heavier advertising, a larger sales force or
continuous product development

o High switching costs for early adopters

o Early adaptors may be reluctant to change their preference

o Compatible spare parts, investments in employee training, the risk lower product quality make it
easier for the pioneer to retain its position
Pioneer Strategy
o Possibility of positive network effects

o The value of some kind of goods increase for customers as greater number of other people
adopt the product and the network of users grows faster

o The positive network effects generated by the customer base enhance the value of pioneer’s
offering

o Possibility of preempting scarce resources

o The pioneer may be able to strike favorable deal with the suppliers who are wager for new
business

o If later entrants subsequently find those materials and components in short supply, they may be
constrained from expanding as fast as they might be willing
Follower Strategy
o Pioneer’s positioning mistakes
o If the pioneer misjudges the purchase criteria of the segment, it is vulnerable to
the precise position by the follower
o Pioneer’s product mistakes
o If the pioneer’s initial products has technical limitations and design flaws – the
follower can benefit from them
o Even if the product is technically satisfactory – follower can still acquire
advantage by product enhancement
o Pioneer’s marketing mistakes
o The pioneer may fail to attain adequate distribution, spend too little on
introductory advertising or weak appeal to communicate product benefits –
follower can design a marketing program avoiding such mistakes
Follower Strategy
o Latest technology
o Followers have an advantage of launching products based on superior
technology
o Pioneer may find it difficult to react to such advances if it is heavily committed to
earlier technology
o Pioneer’s limited resources
o If the pioneer has limited capacity for production facilities, resources for
marketing programs – enduring followers who can outspend the pioneer may
still secure advantage
Determinants of Success for Pioneers and Followers
o The new product market is insulated from the entry of competitors by
o strong patent protection
o proprietary technology (such as unique production process),
o substantial investment requirements
o Positive network effects
o The firm has sufficient size, resources and competencies (such as R&D and
marketing skills)
Marketing Strategy Elements Pursued by Successful Pioneers,
Fast Followers, and Late Entrants

Successful pioneers • Large entry scale

• Broad product line
• High product quality
• Heavy promotional expenditures
Successful fast followers • Larger entry scale than the pioneer
• Leapfrogging the pioneer with superior:
Product technology
Product quality
Customer service

Successful late entrants • Focus on peripheral target markets or niches

Strategic Marketing Programs for Pioneers
o Mass-market penetration
o Primary objective of mass-market penetration strategy is to capture and maintain a
commanding share of the total market for the new product
o Mass-market penetration tends to be more appropriate when entry barriers inhibit
or delay the appearance of competitors
o So the pioneer can build volume, lower cost and create loyal customers
o A small firm can also employ Mass-market penetration, if the market has
protracted adoption process
o Mass-market is also an appropriate strategy when the product category is likely to
experience positive network effects

o Niche penetration
Strategic Marketing Programs for Pioneers
o Niche penetration
o A small pioneer with limited resources can pursue the objective of focusing on a
smaller single segment instead of leading share of entire market
o Smaller pioneer can gain the bang with its limited investment and avoid direct
confrontation
o A niche marketing strategy is appropriate if market growth is quick and there are
a number of different benefits or application segments to appeal to.
o Skimming and early withdrawal
o Competition is usually inevitable and margins tend to drop after follower enter
the market
o Therefore, pioneers opt to pursue a skimming strategy while planning an early
withdrawal from the market
o This involves setting a high price and engaging limited advertising to maximize
per unit profit and recover the product development cost at the earliest
Fortress, or Position Defense, Strategy
• The most basic defensive strategy is to continually
strengthen a strongly held current position
• To build an impregnable fortress capable of repelling
attacks by current or future competitors
• This strategy is nearly always part of a leader’s share-
maintenance efforts
• Actions to improve customer satisfaction and loyalty
• Actions to encourage and simplify repeat purchasing
Flanker Strategy
• A shortcoming of a fortress strategy is that a challenger might simply
choose to bypass the leader’s fortress and try to capture territory
where the leader has not yet established a strong presence
• To defend against an attack directed at a weakness in its current offering, a
leader might develop a second brand to compete directly against the
challenger’s offering
Flanker Strategy
• Flanker strategy: Involves trading up, where the leader develops a
high-quality brand offered at a higher price to appeal to the prestige
segment of the market
• A flanker brand is a lower-quality product designed to appeal to a
low-price segment to protect the leader’s primary brand from direct
price competition
• Always used in conjunction with a position defense strategy
Confrontation Strategy
• Often, a leader may have no choice but to confront the competitive
threat directly
• If the leader’s competitive intelligence is good, it may decide to move
proactively and change its marketing program before a suspected competitive
challenge occurs
• A confrontational strategy is more commonly reactive
• The leader can avoid the problems of a confrontation strategy by
reestablishing the competitive advantage eroded by challengers’
frontal attacks
Market Expansion
• A more aggressive and proactive version of the flanker strategy
• Here the leader defends its relative market share by expanding into a
number of market segments
• Primary objective is to capture a large share of new customer groups who
may prefer something different from the firm’s initial offering, protecting the
firm from future competitive threats from a number of directions
Contraction or Strategic Withdrawal
• In some highly fragmented markets, a leader may be unable to
defend itself adequately in all segments
• The firm may have to reduce or abandon its efforts in some segments to focus
on areas where it enjoys the greatest relative advantages or that have the
greatest potential for future growth